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HAS THE STATUTE OF LIMITATIONS BEEN TRASHED?Reports Abound that IRS has Unlimited Time to Collect

I’ve been asked several times in just the past couple of weeks whether it’s true that Congress abolished the ten-year statute of limitations on the IRS’s right to collect delinquent taxes. The reports are that the government now has an unlimited amount of time to collect delinquent debts. I did an Internet search for news stories on the issue and found quite a number of them, including one by Megyn Kelly, host of the Fox News show The Kelly File.

In her report, it’s claimed that the ten-year statute of limitations was quietly repealed in 2011, allowing the government to go back indefinitely to collect delinquent debts. The report also stated that the law allows the government to collect from a debtor’s children and grandchildren. Naturally, the people I spoke with were panicked over the idea of the IRS chasing them for the rest of their lives—and then the lives of their children—to collect delinquent taxes.

I try to pay pretty close attention to developments in the tax law. Because it’s nearly impossible to keep abreast of everything that happens with the code, regulations and rulings, I must stay focused on one area. It’s like having a specialty within a specialty. I choose to stay focused on tax law enforcement—audits, appeals and collection issues, taxpayers’ rights and the like. These matters are the subjects of nearly all of my books, articles and reports.

I didn’t know anything about a 2011 act of Congress eliminating the IRS’s collection statute of limitations. I think I would have noticed something so profound as that. In fact, the last time the collection statute was addressed by Congress was in 2000, when amendments were made to certain portions of the IRS Restructuring and Reform Act that impacted the collection statute. So important were those changes that I wrote extensively about them and included more than one session on the matter in my annual Taxpayers Defense Conference. But that was ten years ago.

So when the person I spoke with brought up the question about the alleged recent change, I immediately went to my library of the Internal Revenue Code, regulations and rulings to check the law myself. Since my CD library is updated monthly (and I have Internet access to all changes on a daily basis), I am assured to have the most up-to-date information.

What I found is what I expected to find—nothing. That is, the IRS’s ten-year collection statute of limitations was not altered or abolished by Congress in 2011, or anytime since. Internal Revenue code section 6502 currently reads the way it has since it was last amended in 1998 by the Restructuring Act. The changes that occurred in 2000 were to other code sections impacting section 6502, but not section 6502 itself.

Thus, at least insofar as tax debts are concerned, the IRS still has just ten years to collect the debt. Now it’s true that the ten-year period can be extended but the IRS cannot do so unilaterally. Certain actions that taxpayers might take in connection with their cases can extend the statute. For example, the filing of an Offer in Compromise or bankruptcy extends the collection statute while these actions are pending. Such acts that extend the statute are referred to as “tolling events.” That is, they have the effect of tolling—stopping the clock—on the ten-year period. I discuss the collection statute thoroughly in my Tax Amnesty Package, including a full discussion of all the tolling events, as there are several of them.

Moreover, it always has been and remains a fundamental principle of tax law that the IRS cannot collect a tax debt from anyone other than the person who owes it. If you owe taxes, the IRS cannot collect from your children, grandchildren or anyone else on the planet that may or may not be related to you. If it could, what would be the difference between collecting the debt from your children or from your children’s babysitter? Under such a scheme, the IRS could collect anyone’s debt from—literally—anyone else.

Whatever change there may have been that affected a non-tax ten-year statute of limitations somewhere in the vast scope of federal law that I very well may not aware of, it has absolutely nothing to do with collecting delinquent federal tax debts. And in fact, when you read the on-line stories very carefully, what you find is that it appears the collection action is being carried out by the IRS through the federal offset program. That is, the IRS is intercepting tax refunds on behalf of some other creditor, such as the Social Security Administration. In that case, the beef is with the creditor alleging the debt, not with the IRS as the third-party debt collector.